Gold price in India: 21 percent up since Diwali last; Will it touch 41,500 by 2020?

With global economic growth slowing down and IMF, OECD and World Bank trimming growth forecasts, there could be further gains witnessed in gold.

India has also added gold to its reserves and with a dovish outlook on the economy gold could continue to outperform.

Gold Returns in India: Gold in India is primarily used as wearable in the form of jewellery. Of late, gold has also become a part of one’s investment portfolio through gold investments such as Gold ETF, Sovereign gold bonds, gold mutual fund schemes etc. Investors are also seen investing in gold by buying gold coins from banks or wallets such as Amazon, Paytm etc.

Since January, gold price in India has moved up by almost 15 per cent and compared to previous year Diwali, the gold price is up by nearly 21 per cent. Equities as an asset class as generated about 10 per cent over the same time period. The price of 24k gold can be had from the MCX India website which carries the updated spot price of gold in Ahmedabad. As on October 18, the gold was trading at a price close to Rs 38,241 for 10 gram.

Primary factors leading to higher gold prices could be attributed to concerns of a trade war between US and China. Geo-political tensions and uncertainties related to Brexit could also be considered as the reasons for the rising price of the yellow metal. With global economic growth slowing down and IMF, OECD and World Bank trimming growth forecasts, there could be further gains witnessed in gold.

India has always been a large consumer of gold and on an average we have been importing nearly 800 tonnes of gold each year. This year the story is a bit different. According to Kishore Narne, Head- Commodities & Currency, Motilal Oswal Financial Services Limited (MOFSL) informs, “Domestic Gold demand has remained subdued, where Dussehra sales were 20 per cent lower than the previous year and at the same time higher prices could dent the overall demand in Diwali as well.”

Is a higher import duty to blame? “Elevated prices and hike in import duty by 2.5 per cent also took a hit on gold imports that were down 12 per cent in 2019. Gold imports for 2019 have been to the tune of about 565 tonnes until September compared to about 644 tonnes in the same period last year,” says Narne.

But, will the price of gold continue to rise? “We expect that ease off in trade war could lead to some correction in prices, but until Rs 35,500 is held, we remain bullish and expect it move higher to test previous highs of Rs 39,500 followed by Rs 41,500 over the next 12 months,” says Narne.

If you are contemplating to invest in gold as part of your investment portfolio, it’s better to stick to paper-gold such as Gold ETF, Sovereign gold bonds or gold mutual fund schemes rather than buying gold coins or jewellery. Also, as most financial planners suggest, do not go overboard and diversify in gold as an asset class up to 10-15 per cent of your portfolio linked to your long term goals.